Difference between Debit Cards and Credit Cards

Both Credit Cards and Debit Cards are part of our financial system. Credit cards as well as Debit Cards typically look identical, with 16-digit card numbers, expiration dates, CVV and other security features such as EMV chips. Both Credit Cards and Debit Cards will help you to make convenient purchases in stores as well as online. Both Credit Cards and Debit Cards will help you to prevent carrying cash. Banks usually offer reward points as well as various deals & offers for both Credit Cards and Debit Cards.

Source of Funds

The fundamental distinction between a credit card and a debit card lies in the source of funds they draw upon for transactions. When you use a credit card, you are essentially borrowing money from the card issuer, typically a bank or financial institution, which you then repay at a later date. This means that with a credit card, you are given a line of credit to make purchases, and you are not directly spending your own money.

On the other hand, a debit card is directly linked to your bank account, usually a savings or checking account. When you use a debit card, the funds for the transaction are drawn directly from your linked bank account. In this case, you are spending your own money, and the purchase amount is immediately deducted from your available balance.

One of the key implications of this difference is how it affects your financial management and budgeting. With a credit card, you have the flexibility to make purchases even if you don't currently have the funds available, as long as you stay within your credit limit. However, it's important to remember that you are responsible for repaying the borrowed amount, and failure to do so can result in interest charges and late fees.

Spend Limit
For Credit Cards, your issuer bank will be fixing a limit beyond which you will not be able to make any purchases. In the case of Debit Cards, you can spend up to the balance of your Savings or Current account. 

Billing
For Credit Cards, you will be billed on a monthly basis and you can receive the statement of transactions. For Debit Cards, there is no billing or statement. Credit Card bill needs to be paid before its due date.

Interest on Spends
For Credit Cards, interest will be charged on the outstanding amount if it hasn't been paid by the due date. For Debit Cards, no interest will be charged. Credit card interest rates can vary, but they tend to be relatively high compared to other types of loans. The interest is usually calculated daily, and the longer you take to repay the balance, the more interest you will owe. Credit card companies often express the interest rate as an annual percentage rate (APR), which helps consumers understand the cost of borrowing over a year.

Eligibility
To get a Debit Card, you need to have a Savings Account or Current Account with your Bank. Credit Cards are issued by Bank based on various factors such as your income, credit score, credit history, past relationship with the Bank etc.

ATM Withdrawal
If you withdraw money from ATM using your Debit Card, no interest will be charged. Because you are withdrawing the amount deposited in your bank account. However, if you use your Credit Card to withdraw money from ATM, bank will consider this as a type of loan / credit which you will have to repay with a high rate of interest.

Credit Score
Paying your credit card bills on time and in full each month demonstrates responsible financial behavior. This positive payment history can boost your credit score over time. Conversely, late or missed payments can negatively affect your score. The longer you responsibly use a credit card, the more it contributes to your credit history. Lenders and creditors like to see a lengthy history of timely payments, which can improve your credit score. However, Credit Score is not related to your Debit Card spends.

Get a Debit Card  Apply for Credit Card